Franklin Templeton has launched a new actively managed ETF in the US investing in infrastructure companies with stable cash flows and strong environmental, social, and governance (ESG) attributes.
Nick Langley, Managing Director and Senior Portfolio Manager at Clearbridge Investments.
The ClearBridge Sustainable Infrastructure ETF (INFR US) has been listed on Nasdaq with an expense ratio of 0.59%.
Infrastructure assets have historically acted as a hedge against inflation while also providing portfolio diversification given their low correlations to equity and debt markets.
The fund is sub-advised by ClearBridge Investments, a specialist investment manager of Franklin Templeton, with Nick Langley, Managing Director and Senior Portfolio Manager, overseeing day-to-day operations.
Langley said: “Investors are looking at 2023 with a base case of slowing growth and possible recession, yet infrastructure assets are positioned to benefit from many macroeconomic drivers over the next year and beyond.
“Due to the many tailwinds for the asset class – the heightened focus on energy security in Europe, a supportive policy environment in the US, and the global push toward decarbonization of the global economy – it is a fantastic time for investors to diversify their portfolios with exposure to infrastructure.”
Investment approach
The ETF targets companies with more than 50% of their assets, income, sales, or profits committed to physical assets necessary for communities and economies to function and grow.
According to ClearBridge, eligible assets include those linked to public transportation, electricity provision, energy infrastructure, clean water, sewage, communications, and renewables.
The fund may invest globally including allocating up to 20% of its assets to companies listed in emerging markets. Infrastructure firms of any market capitalization are eligible for inclusion.
Clearbridge’s analysis first seeks out companies with contractual and/or regulatory rights that provide for the ability to generate relatively stable cash flows to equity holders.
All eligible companies are then assigned a proprietary ESG rating based on that firm’s current sustainability performance as well as expectations of any improvement or deterioration across a five-year investment horizon. Particular attention is placed on how the firm manages its climate-related risks and opportunities.
The ETF will hold between 25 and 50 securities. Final security selection is driven by a bottom-up process that seeks out attractively valued companies based on a consideration of a firm’s dividends, cash flows, capital growth projections, capital expenditures, balance sheet, and capital requirements. A top-down approach is then applied to ensure that the portfolio is not overly exposed to a particular geography, sector, or other macro factors.
As of 6 January, the ETF had 32 holdings with the most notable exposures being EDP Energias De Portugal (5.3%), Iberdrola (5.0%), Terna Rete Elettrica Naziona (4.6%), Public Service Enterprise GP (4.5%), and SSE (4.3%).
The ETF distributes income to investors on a semi-annual basis.